Feb 05, 2016 08:42:11
Kalbe Farma ($KLBF) : A More Diversified And Manageable Year

We believe 2016 would be a more manageable year for Kalbe due to increasing contribution from its growing consumer health and nutritional divisions (whose combined sales contribute c.46% of Kalbe’s total sales in FY15F). Kalbe has also resumed production of its injection-drug production line, which was suspended in Mar 2015. Furthermore, a lower USD/IDR exchange rate would also benefit Kalbe as it imports 95% of its raw materials. Maintain BUY and IDR1,600 TP (33x/27x FY16F/FY17F P/Es, 22% upside).

¨ Sales pickup in consumer health and nutritional divisions. We gather from our recent meeting with Kalbe Farma (Kalbe) that sales in its consumer health and nutritional divisions had picked up in the last three months (Nov-Dec 2015 and Jan 2016). The positive sales trend is consistent with Sumber Alfaria Trijaya’s ($AMRT) improved same-store sales growth (SSSG) of 8.29%/11.39% in Nov/Dec 2015. Therefore, we believe the consumer sector has slowly rebounded, which bodes well for Kalbe as c.46% of its total sales are from the consumer health and nutritional divisions.

¨ Expanding export sales to ASEAN countries. Kalbe will continue to expand export sales of its consumer health and nutritional products to ASEAN countries. We forecast that the export sales contribution would grow to 5.5% of Kalbe’s total sales in FY16 (vs 5.0% in FY15F). In Myanmar, Kalbe sells Mixagrip and Procold flu medicines and Zee milk. In the Philippines, Kalbe sells Extra Joss energy drink, Hydro Coco (coconut-flavoured isotonic drink), and Diabetasol milk. Kalbe is aiming to enter Thailand this year.

¨ Injection drug resumes production. The production line of 24 injection drugs, which was suspended in Mar 2015 in the wake of a death incident involving the Buvanest Spinal anesthetic drug, has resumed production since Jan 2016. Thus, Kalbe expects the pharmaceuticals division’s sales to grow c.6% this year (vs 0.2% sales growth in 9M15).

¨ Focusing on value-added products. As Kalbe focuses on its value-added medicine portfolio (such as biosimilar products, oncology medicine and stem-cell research), we believe the company’s positioning in the next 3-5 year time frame would be more strengthened. Its allogeneic stem-cell research for arthritis has entered the preclinical trial stage.

¨ Primary beneficiary of strengthening and stable IDR against USD. As the IDR has strengthened against the USD, Kalbe would benefit the most as it imports 95% of its raw materials. Furthermore, should the Government proceed with its contemplated plan to allow 100% foreign ownership in the upstream/raw material segment of the pharmaceutical sector, Kalbe would also stand to benefit in the longer term as it will be able to source raw materials domestically in IDR, thus reducing its dependence on the USD/IDR exchange rate.